Luscar extends Manalta buyout offer — Manalta takes loan in hopes of keeping unit-holders on side

Luscar Coal Income Fund has revised its original offer to unit-holders of Manalta Coal Income Trust in its bid to take over Canada’s largest coal producer.

Luscar has extended its offer to Aug. 28 and countered a plan by Manalta Coal to lower the final payments of its instalment receipts to $1 from $4 by stating it would pay the final instalment regardless of price. In order to finance the price rollback, Manalta has borrowed $270 million from the Royal Bank. The loan must be repaid in five years, with $100 million of that due in the first two.

Luscar has adjusted its bid based on Manalta’s decision to paydown a portion of the final payment on instalment receipts for its unit-holders. However, it is still offering 0.335 of a Luscar unit for each of the 87 million outstanding Manalta receipts.

In order to help finance the takeover bid, Luscar last week completed a public offering valued at $100 million.

Gordon Ulrich, president of Luscar, says the loan “fundamentally alters the structure of the Manalta Fund,” leaving it open to risk and restricting its growth potential. He adds that Manalta will have to sell assets or dilute its equity in order to meet the repayment schedule.

Luscar is also seeking to block a unit-holder rights protection plan (or “poison pill”) that would give Manalta time to examine its options and evaluate other offers. Says George Chapel, president of Manalta Coal: “[There] is a good chance that a better alternative will emerge in the next few weeks. We need time to allow this to happen.”